Economic recessions can be challenging for companies as they bring declining consumer spending and increased competition for business. However, there are steps that companies can take to weather the storm and emerge from the recession stronger. This article will explore what research suggests on what companies can do during a recession.
Focus on core competencies
During a recession, it can be tempting for companies to diversify their product lines or expand into new markets to generate more revenue. However, research has shown that companies focusing on their core competencies during a recession tend to perform better than those attempting to diversify (Wu & Knott, 2021).
Companies that focus on their core competencies can better compete on quality and differentiation, which can be particularly important during a recession when consumers may be more price-sensitive.
In other words, companies must first assess their core competencies properly before they rush into the diversification strategy; it’s the core competencies that will show the diversification route.
Control costs
Controlling costs is a company’s most crucial step during a recession. This may involve reducing headcount, renegotiating supplier contracts, or cutting back on discretionary spending.
Companies that can control costs during a recession are more likely to emerge from the recession in a stronger position than those that are not (Wu & Knott, 2021). In addition, controlling costs can help companies maintain profitability during a period of declining revenue.
Invest in innovation
While cutting back on research and development (R&D) during a recession may be tempting, companies that continue to invest in innovation tend to perform better in the long run.
Research shows that companies that invest in R&D during a recession are more likely to emerge with new products or services that can help them compete more effectively (Beneish et al., 2020). In addition, companies that invest in R&D during a recession are more likely to outperform their competitors in the years following the recession.
R&D is the primary weapon for the battle for the future, so companies investing now win later.
Focus on customer service
During a recession, consumers may be more price-sensitive and less loyal to specific brands. However, companies focusing on providing excellent customer service during a recession are more likely to retain customers and survive. After the recession, they will thrive.
Research suggests that companies which focus on customer service during a recession are more likely to emerge from the recession more robust than those that do not (Wu & Knott, 2021). In addition, companies that provide excellent customer service during a recession are more likely to build long-term customer loyalty.
Modern psychology stresses the importance of resilience, the ability to cope with adverse situations and emerge stronger like a tree branch that bends but doesn’t brake. In my experience, companies in close relationships with customers tend to be more resilient in times of crisis.
Expand into new markets
While it may be counterintuitive, expanding into new markets during a recession can be an effective way for companies to generate new revenue streams.
Research has shown that companies expanding into new markets during a recession are more likely to outperform their competitors in the long run (Beneish et al., 2020). Companies expanding into new markets can diversify their revenue streams and reduce dependence on any one market or product line.
Maintain cash reserves
During a recession, access to credit is usually limited, and cash flow is tighter than usual. As a result, companies that maintain cash reserves during a downturn can better weather the storm and emerge from the recession much stronger.
Research reveals that companies that maintain cash reserves during a recession are more likely to survive and outperform their competitors in the years following the recession (Beneish et al., 2020). In addition, maintaining cash reserves allows companies to take advantage of new opportunities as they arise.
Remember the famous: “Cash is king.”
Conclusion
In conclusion, economic recessions can be challenging for companies and a significant threat to their existence. Still, there are steps that companies can take to survive and emerge from the downturn stronger and wiser. By focusing on their core competencies, controlling costs, investing in innovation, focusing on customer service, expanding into new markets, and maintaining cash reserves, companies can position themselves for success both during and after a recession.
Companies need to remember that the strategies that work during a recession may not be the same as those that work during periods of economic growth. For example, companies may need to focus more on cost control and customer retention during a recession. In contrast, they may need to focus more on growth and expansion during economic growth.
Ultimately, remaining flexible and adaptable is the key to success during a recession. Companies that can pivot quickly and adjust their strategies as needed are more likely to emerge from a recession, winners and not losers, in one piece and not hurt.
References:
Beneish, M. D., Billings, B. K., & Hodder, L. D. (2020). The economic effects of recessions on corporate financial reporting. Journal of Accounting Research, 58(5), 1163–1202.
Wu, Y., & Knott, A. M. (2021). The impact of a recession on strategic decision-making: Evidence from the 2008–2009 financial crisis. Journal of Business Research, 123, 135–145.
